TATA CONSULTANCY SERVICES
Q3 FY 21 RESULTS ANALYSIS
09.01.2021
Strong Demand Drives TCS Q3 Growth Momentum -
Highlights of Q3 FY 21
• Revenue at Rs.42,015 crore, +4.7% QoQ, +5.4% YoY
• Constant Currency revenue growth: +4.1% QoQ, +0.4% YoY
• Net Income at Rs.8,701 crore, +3.2% QoQ, +7.3% YoY
• Operating Margin at 26.6%; Net Margin at 20.7%
• Strong Cash Conversion: Net Cash from Operations at ,11,952 Crore : 137.4% of Net Profit
• Consolidated headcount: 469,261 I Net addition: 15,721 : Women in the workforce: 36.4%
• 366K+ employees trained in new technologies; 444K+ on Agile methods
• IT Services attrition rate dips to a new all-time low, at 7.6% LTM
• Interim Dividend per share: ~6.00 I Record date 16/01/2021 I Payment date 03/02/2021
IFRS Financial Statements
Consolidated Statements of Comprehensive Income
For the three-month periods ended December 31, 2019, and December 31, 2020
(In millions of Rs. except per share data)
Q3 FY 20 Q3 FY 21
Revenue 398,540 420,150
Cost of revenue 233,690 245,270
Gross margin 164,850 174,880
SG & A expenses 65,110 63,140
Operating income 99,740 111,840
Other income (expense), net 5,950 5,080
Income before income taxes 105,690 116,920
Income taxes 24,260 29,650
Income after income taxes 81,430 87,270
Non-controlling interests 250 260
Net income 81,180 87,010
Earnings per share in Rs.21.63 23.19
Consolidated Statements of Financial Position
(In millions of Rs.)
31,March, 2020:: 31st,Dec,2020
Assets
Property and equipment 119,380 119,810
Right-of-use Assets 79,940 76,980
Intangible assets and Goodwill 41,330 43,990
Accounts Receivable 306,060 299,670
Unbilled Revenues 105,440 93,920
Investments 263,560 503,440
Cash and Cash equivalents 86,460 72,160
Other current assets 148,950 154,940
Other non-current assets 79,010 77,060
Total Assets 1,230,130 1,441,970
Liabilities and Shareholders' Equity
Shareholders' Funds 862,400 821,390
Other current liabilities 270,600 527,200
Other non-current liabilities 90,900 86,670
Non-controlling interests 6,230 6,710
Total Liabilities 1,230,130 1,441,970
Ind AS Financial Statements
Consolidated Statement of Profit and Loss
Q3 FY 20 Q3 FY 21
(In Rs crore, except per share data)
Revenue 39,854 42,015
Expenditure
a) Employee Costs 21,622 23,431
b) Cost of equipment and software licences 460 396
c) Other Operating expenses 6,901 5,980
d) Depreciation 897 1,024
Total Expenditure 29,880 30,831
Profit Before Taxes & Other Income 9,974 11,184
Other income (expense), net 595 508
Profit Before Taxes 10,569 11,692
Provision For Taxes 2,426 2,965
Profit After Taxes & Before Non-controlling interest 8,143 8,727
Non-controlling interests 25 26
Net Profit 8,118 8,701
Earnings per share in Rs. 21.63 23.19
Consolidated Balance Sheet
As at March 31, 2020 and December 31, 2020
(In crores of Rs')
As at March 31, 2020 DEC,31,2020
ASSETS
Property, plant and equipment 12,130 12,293
Right-of-use assets 7,994 7,698
Investments 26,356 50,344
Deferred tax assets (net) 2,828 3,332
Goodwill (on consolidation) 1,710 1,850
Cash and Bank Balance 9,666 11,075
Current Assets, Loans & Advances 54,431 50,444
Non-current assets, Loans and advances 5,784 5,040
Total Assets 120,899 1,42,076
EQUITY AND LIABILITIES
Shareholders' Funds 84,126 80,018
Non-controlling interests 623 671
Deferred Tax Liabilities (net) 779 695
Current Liabilities and Provisions 27,060 52,270
Non-current liabilities and provisions 8,311 7,972
Total Liabilities 120,899 1,42.076
Q3 Segment Highlights**
Industries:
All verticals showed good sequential growth, led by Manufacturing (+7.1%), BFSI (+2%), Life Sciences and Healthcare (+5.2%), Communications & Media (+5.5%) and Retail and CPG (+3.1%).
On a year on year, constant currency basis, Life Sciences and Healthcare continued to grow in double digits at 18.2%. BFSI (+2.4%) and Technology & Services (+2.4%) also moved into positive territory.
Markets:
Sequential growth was led by North America (+3.3%), India (+18.1%), UK (+4.5%), and Continental Europe (+2.5%). Other markets grew as well, with and Asia Pacific growing +2.6%, MEA +6.7%, and Latin America +3.1%.
Services:
Continue to see a strong rebound in growth and transformation services as customers seek to operationalize new models. Growth in the quarter was led by Cloud Services, Analytics & Insights, Cognitive Business Operations, loT and Quality Engineering & Transformation Platform Services.
• Consulting & Services Integration: Continued robustness in demand, led by digital and cloud strategy, enterprise agility, mergers and acquisitions, and supply chain and finance transformation.
• Cognitive Business Operations: Experiencing strong growth due to acceleration of digital adoption and hyper-automation across enterprises to enhance agility, customer experience, agility and deliver superior business outcomes. Growth in Q3 was led by datacenter services, service desk and end-user computing, supply chain operations, and automation services.
• Digital Transformation Services: There was strong demand for hyperscaler cloud services. key areas included mainframe and legacy modernizations, data modernization on cloud (MDM, data lakes), augmented analytics for in-context insights, risk regulatory & compliance analytics and use of cloud platforms for collaboration. Cybersecurity continued to be of the highest priority as new work models emerge.
The need to enhance user experience across enterprise functions drove good growth for professional services around Sales force, SAP S/4 HANA and BPM.
Consumer demand for automated and contact-less services led to good growth for TCS Interactive; in design led services, digital marketing and content services.
Growth in loT (The Internet of Things (IoT) describes the network of physical objects—“things”—that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet) was led by strong demand for implementing loT-enabled remote monitoring and self-optimizing plant operations.
New offerings launched in Q3 include TCS CogniX™, an Al-driven suite of prebuilt solutions for accelerating digital transformation of operations, ConvertCore™ for accelerated S/4HANA transformation assessment & migration and an expanded version of Crystallus™, a contextualized preconfigured solution for enterprise transformation, to cover Railways.
The company's people culture, and world-leading HR practices have made it the global industry benchmark in talent retention.
In Q3, its IT services attrition rate (LTM) was at 7.6%. "While continuing to stay closely focused on employee engagement and morale, we are now gearing up for growth.
Our sustained investment in organic talent development is now paying rich dividends, helping ·us support our business growth. We are also continuing along our journey to re-imagine and transform the HR value chain, leveraging technology innovatively to digitize processes, virtualize interactions, and enhance responsiveness.
These initiatives for entry-level hiring, training and onboarding were so successful, we are now rolling out similar models for mid-level hiring and incremental reskilling.
All this has resulted in a superior employee experience, while materially driving up our throughput," said Mlllnd Lakkad, Chief Human Resources Officer
About Tata Consultancy Services Ltd (TCS)
Tata Consultancy Services is an IT services, consulting and business solutions organization that has been partnering with many of the world's largest businesses in their transformation journeys for over so many years.
TCS offers a consulting-led, cognitive powered, integrated portfolio of business, technology and engineering services and solutions.
This is delivered through its unique Location Independent Agile™ delivery model, recognized as a benchmark of excellence in software development.
A part of the Tata group, India's largest multinational business group, TCS has over 469,000 of the world's best-trained consultants in 46 countries.
The company generated consolidated revenues of US $22 billion in the fiscal year ended March 31, 2020, and is listed on the BSE (formerly Bombay Stock Exchange) and the NSE (National Stock Exchange) in India.
TCS' proactive stance on climate change and award-winning work with communities across the world have earned it a place in leading sustainability indices such as the Dow Jones Sustainability Index (DJSI), MSCI Global Sustainability Index and the FTSE4Good Emerging Index.
Commenting on the Q3 performance, Rajesh Gopinathan Chief Executive Officer and Managing Director TCS said:
"Growing demand for core transformation services and strong revenue conversion from earlier deals have driven a powerful momentum that helped us overcome seasonal headwinds and post one of our best performances in a December quarter.
We are entering the new year on an optimistic note, our market position stronger than ever before, and our confidence reinforced by the continued strength in our order book and deal pipeline."
He added: "Looking beyond the immediate business growth opportunity, we are tremendously excited by what lies ahead.
Cloud is enabling a new class of boundary-less organizations, that can seamlessly partner and collaborate within larger ecosystems to create innovative purpose-driven offerings to customers.
This boundary-less value creation, supported by the seamless fabric of technology enabled by cloud together the seamless fabric of talent enabled by our SBWS™, will redefine industry after industry over the longer term.
Our intimate knowledge of our customers' business contexts, our strong relationships across ecosystems, and our continued investments in research and innovation make us their preferred partner in their growth and transformation journeys."
N Ganapathy Subramaniam Chief Operating Officer Executive Director TCS said: "Our Q3 growth is a very satisfactory outcome of our ability to leverage the proactive investments made to capture the strong demand and be meaningful to our clients.
It is a strong endorsement of our resilience, way of working and the relative competitiveness of our products and services.
We celebrated the accomplishment of our Enterprise Agile by 2020 vision during the quarter, and with SBWS™, we have a well-oiled location-independent execution model that brings in the resources just in time, efficient execution, and machine-led delivery governance that are delighting our customers. All these augur well to progress our 25x25 future of work vision."
He added: "We have had healthy deal closures and the growth has been broad based on a sequential basis, setting ourselves well for the future.
We also welcome to the TCS fold, the professionals from Pramerica and Postbank Systems, accelerating our growth plans in Ireland, Germany and more broadly in Europe."
V Ramakrishnan Chief Financial Officer TCS said: "Strong growth across all our verticals, and operational benefits from our SBWS model allowed us to post the highest operating margin in the last five years, even after rolling out a salary increase this quarter.
We also had an all-time high cash conversion in Q3. This and our strong balance sheet position us very strongly to seize the opportunities that the current market offers, and more closely partner our customers in their growth and transformation journeys."
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